diff --git a/src/libs/UnreadIndicatorUpdater/index.ts b/src/libs/UnreadIndicatorUpdater/index.ts
index 11472ce3e385..2a7019686308 100644
--- a/src/libs/UnreadIndicatorUpdater/index.ts
+++ b/src/libs/UnreadIndicatorUpdater/index.ts
@@ -2,31 +2,40 @@ import type {OnyxCollection} from 'react-native-onyx';
 import Onyx from 'react-native-onyx';
 import * as ReportUtils from '@libs/ReportUtils';
 import Navigation, {navigationRef} from '@navigation/Navigation';
+import CONST from '@src/CONST';
 import ONYXKEYS from '@src/ONYXKEYS';
 import type {Report} from '@src/types/onyx';
 import updateUnread from './updateUnread';
 
 let allReports: OnyxCollection<Report> = {};
 
+export default function getUnreadReportsForUnreadIndicator(reports: OnyxCollection<Report>, currentReportID: string) {
+    return Object.values(reports ?? {}).filter(
+        (report) =>
+            ReportUtils.isUnread(report) &&
+            ReportUtils.shouldReportBeInOptionList({
+                report,
+                currentReportId: currentReportID ?? '',
+                betas: [],
+                policies: {},
+                doesReportHaveViolations: false,
+                isInGSDMode: false,
+                excludeEmptyChats: false,
+            }) &&
+            /**
+             * Chats with hidden preference remain invisible in the LHN and are not considered "unread."
+             * They are excluded from the LHN rendering, but not filtered from the "option list."
+             * This ensures they appear in Search, but not in the LHN or unread count.
+             */
+            report?.notificationPreference !== CONST.REPORT.NOTIFICATION_PREFERENCE.HIDDEN,
+    );
+}
+
 const triggerUnreadUpdate = () => {
-    const currentReportID = navigationRef.isReady() ? Navigation.getTopmostReportId() : '';
+    const currentReportID = navigationRef.isReady() ? Navigation.getTopmostReportId() ?? '' : '';
 
     // We want to keep notification count consistent with what can be accessed from the LHN list
-    const unreadReports = Object.values(allReports ?? {}).filter((report) => {
-        if (!ReportUtils.isUnread(report)) {
-            return false;
-        }
-
-        return ReportUtils.shouldReportBeInOptionList({
-            report,
-            currentReportId: currentReportID ?? '',
-            betas: [],
-            policies: {},
-            doesReportHaveViolations: false,
-            isInGSDMode: false,
-            excludeEmptyChats: false,
-        });
-    });
+    const unreadReports = getUnreadReportsForUnreadIndicator(allReports, currentReportID);
     updateUnread(unreadReports.length);
 };
 
diff --git a/tests/unit/UnreadIndicatorUpdaterTest.ts b/tests/unit/UnreadIndicatorUpdaterTest.ts
new file mode 100644
index 000000000000..a5f58b57793a
--- /dev/null
+++ b/tests/unit/UnreadIndicatorUpdaterTest.ts
@@ -0,0 +1,41 @@
+/* eslint-disable @typescript-eslint/naming-convention */
+import CONST from '../../src/CONST';
+import getUnreadReportsForUnreadIndicator from '../../src/libs/UnreadIndicatorUpdater';
+
+describe('UnreadIndicatorUpdaterTest', () => {
+    describe('should return correct number of unread reports', () => {
+        it('given last read time < last visible action created', () => {
+            const reportsToBeUsed = {
+                1: {reportID: '1', reportName: 'test', type: CONST.REPORT.TYPE.EXPENSE, lastReadTime: '2023-07-08 07:15:44.030', lastVisibleActionCreated: '2023-08-08 07:15:44.030'},
+                2: {reportID: '2', reportName: 'test', type: CONST.REPORT.TYPE.TASK, lastReadTime: '2023-02-05 09:12:05.000', lastVisibleActionCreated: '2023-02-06 07:15:44.030'},
+                3: {reportID: '3', reportName: 'test', type: CONST.REPORT.TYPE.TASK},
+            };
+            expect(getUnreadReportsForUnreadIndicator(reportsToBeUsed, '3').length).toBe(2);
+        });
+
+        it('given some reports are incomplete', () => {
+            const reportsToBeUsed = {
+                1: {reportID: '1', type: CONST.REPORT.TYPE.EXPENSE, lastReadTime: '2023-07-08 07:15:44.030', lastVisibleActionCreated: '2023-08-08 07:15:44.030'},
+                2: {reportID: '2', type: CONST.REPORT.TYPE.TASK, lastReadTime: '2023-02-05 09:12:05.000', lastVisibleActionCreated: '2023-02-06 07:15:44.030'},
+                3: {reportID: '3', type: CONST.REPORT.TYPE.TASK},
+            };
+            expect(getUnreadReportsForUnreadIndicator(reportsToBeUsed, '3').length).toBe(0);
+        });
+
+        it('given notification preference of some reports is hidden', () => {
+            const reportsToBeUsed = {
+                1: {
+                    reportID: '1',
+                    reportName: 'test',
+                    type: CONST.REPORT.TYPE.EXPENSE,
+                    notificationPreference: CONST.REPORT.NOTIFICATION_PREFERENCE.HIDDEN,
+                    lastReadTime: '2023-07-08 07:15:44.030',
+                    lastVisibleActionCreated: '2023-08-08 07:15:44.030',
+                },
+                2: {reportID: '2', reportName: 'test', type: CONST.REPORT.TYPE.TASK, lastReadTime: '2023-02-05 09:12:05.000', lastVisibleActionCreated: '2023-02-06 07:15:44.030'},
+                3: {reportID: '3', reportName: 'test', type: CONST.REPORT.TYPE.TASK},
+            };
+            expect(getUnreadReportsForUnreadIndicator(reportsToBeUsed, '3').length).toBe(1);
+        });
+    });
+});